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Demand intensifies for inclusion of software scrips on Sensex

Nikhil Fallerio in Bombay

Why are the software scrips, the season's hot cakes, so to say, not included in the 30-share Sensitive Index of the Bombay Stock Exchange to make it the true barometer of the market movement? That is the question stockbrokers and investors in Bombay ask these days.

One of the fastest growing areas, the software segment's recent upswing has been so high that even long-time blue chips find difficult to reach. As Nucleus Securities Managing Director Asit Mehta says, ''Today a software scrip commands more value than a blue chip scrip such as Telco or ACC.''

According to leading stockbrokers, investors prefer these scrips because they see in them an ability to pull off a few surprises from bottomless pits. In a market where even heavyweights like ITC, Indian Hotels, Telco and Tisco need more than a push to even move a few points up, the scrips of the software companies have been galloping away to new heights.

Punters attribute the software industry's star status to the thankless but successful job they have undertaken to break the spell of doom that has engulfed most companies. One more reason is the global race to crack the Y2K problem which has spawned business worth billions of dollars worldwide, with India emerging as one of the hot-spots.

More business has meant rising profits, leading to a spurt in value from six to 17 times over a two-year period beginning June 30, 1996. During the same period, the Sensex rose only 20 per cent.

Sources in the software industry point out that the market capitalisation of each of the top three companies far outstrips the minimum figure required for inclusion on Sensex (whose constituent scrips are from only five sectors -- manufacturing, engineering, automobiles, service and construction).

Infosys Technologies's MC is Rs 38.03 billion, Satyam's Rs 13.42 billion and NIIT's Rs 37.92 billion whereas the BSE's entry-barrier for Sensex is Rs 15 billion while NSE's is Rs 5 billion.

Not only the MC but the share-price of these companies has kept pace with the frenzy. Infosys's is the biggest story. It went public in February 1993 at Rs 95 per share. Today, with two bonuses behind it, it is being quoted at Rs 2612.50. Tata Infotech went public in 1992 at par. Now its price is Rs 1499.50. NIIT is at Rs 1452.50 compared to its issue price of Rs 50 and Satyam quotes at Rs 509.85.

Last October, as the half-yearly results were out, nine software companies -- TCS, CMC, Infosys Technologies, NIIT, Pentfour Software, Satyam Computers, Tata Infotech, Mastek and Leading Edge -- figured among the BSE companies with fastest growth in market capitalisation.

When the entire market was down during the 1997 post-Diwali period, the nine software scrips soared 13 per cent, buoying up the otherwise gloomy mood, and helping Sensex to rise as well in the process.

Today, the combined MC of these nine companies stands at Rs 60 billion. The corresponding aggregate for 30-scrip Sensex is Rs 2 trillion.

NIIT director Sanjivee Kataria says software scrips are more popular now than before on the stock exchanges. "They should be included on the Sensex."

Agrees Invest Trust analyst Ajay Sharma. He projects a bright future for the sunrise industry. He says the Y2K demand will last till 2005, ensuring a steady flow of megabucks for Indian software companies. After 2005, he says, the workforce can move on to projects related to Euro-conversion, something that is tipped to be as significant and lucrative as Y2K.

So, the non-inclusion on Sensex is causing resentment in software companies. But, with heavyweights like Telco, ACC, BHEL, Larsen and Toubro, Tisco and Bajaj Auto commanding a pre-eminent position on the Sensex, the question is: which scrips have to make way for software shares?

Sources at BSE contend that the sunrise software segment does not reflect the movement of the economy in its true form like other industries. Gold Crest Securities Vice President Ajay Shah says the Sensex should track the movement of the economy and only the core sector can be the true barometer of the economy's swings. The software industry, in spite of its huge growth potential, does not do so. Hence it cannot be a true indicator of economic health.

The BSE is determined to keep Sensex unchanged. However, the NSE is reconsidering its position. Talk is that it may soon include the software scrips on its newly named indices.

As Infosys CMD Narayana Murthy recently said, of the global software market of $ 200 billion, Indian companies can provide services of at least $15 billion which can grow by 20 to 30 per cent. India's software exports were at $1.8 billion last year. Sources say it is bound to be higher this year, implying higher scrip values.

Which brings us back to the question -- why keep the golden goose out of the pen?